One of the important tools that I use in my trading execution strategy involves the use of stops. This week has provided me with several interesting situations where I noted stock behavior that was geared toward the “hunting” of stops by programmed trading systems.
I took a stop in my short of VMW from last week today, and although I am fine with the result, it bothered me that I was not able to avoid these Stop Hunters as I normally can. I saw a similar behavior with my MOS long position today as it pulled back from an intial move over the 77 level. The real test for me however came in my trade of CREE.
I went short on CREE a few weeks ago based on this chart:
The stock had a poor earnings report and gapped down on 3/23. It attempted a small rally today and thus I moved my tr stop down to 45.25 and posted such on twitter.
As I watched the stock movement today, it seemed destined to get to that stop. I decided to remove the stop and put on a 5 minute chart to monitor it more closely. My experiment was to see how close it would get to the posted stop on twitter. It overshot by one nickel and then rolled over. One nickel !
I saw a great quote today in this post, and saw a few folks highlight the quote on StockTwits as well:
“Remember, this is the game you signed up for.”